After Friday’s Politburo meeting it seems that the perception that there has been a shift in policy-making is nearly unanimous. The meeting’s focus on “stability” and “continuity” included as a major objective the maintenance of “sustained, stable, and relatively fast growth.” And although “preventing prices from rising too fast” continues to be described as an important policy goal, gone are the references to preventing overheating and maintaining the tightening bias in monetary policy.
In that context it is not as surprising it otherwise might have seemed, I guess, that the PBoC is now calling for growth while ignoring references to tight monetary policy. According to a report from today’s Xinhua:
China's central bank said Sunday it would seek to create conditions for "relatively fast" economic growth in the coming months, despite the ongoing threat of inflation. "We will use various monetary policy tools to create good conditions for stable, relatively fast growth," the bank said on its website.
The central bank's statement came after recent figures suggested growth in China's economy -- the world's fourth-largest -- is beginning to slow.
This has caused quite a lot of heated discussion in the financial markets. One of my students who works in a large city bank in one of the rich southern provinces told me by email this morning that "everyone in my bank is discussing the new statement by the PBoC – and their reluctance to use the phrase tightening policy for the first time. This is close to Wen Jiaobao's voice. "
According to him, however, the PBoC is unwilling to lose their hawkish reputation too quickly, so the consensus in his bank is that they will continue to talk tough, and maybe even make a very ugly face soon, but will in fact actually take actions to loosen credit and liquidity conditions.
It’s not that the monetary alarmists have given up the fight. Today’s People’s Daily has an article citing a speech, also made on Sunday, by the chief economist of the National Bureau of Statistics, generally considered to be on the side of the monetary hawks. The article starts out:
The Chinese economy was likely to maintain stable and fast growth this year, despite being beset with problems and uncertainties, as fundamentals of the economy remained unchanged, Yao Jingyuan, National Bureau of Statistics chief economist, said on Sunday.
The article then goes on to say “He believed the most outstanding challenges China faced were an unbalanced economic structure and big inflationary pressure.” It seems to me that one of the arguments made by those wanting to maintain a tight monetary policy is to insist that the economy is not slowing as precipitously as the growth camp fear.
Meanwhile the stock market seems to have decided that monetary tightening is out, and easy credit, at least easier credit, is back in. The SSE Composite was up 1.33% today, closing at 2903, led largely by banks and real estate developers. Most analysts are saying that the new policy-making consensus reduces the chances, at least in the very near term, for more interest rate or minimum reserve requirement hikes, and that this is good for bank profitability and very good for the property developers. The latter have recently found it very difficult to get financing except from the informal banking sector.
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